Australia's Natural Gas Ban Replicates Springsteen's Rust Belt

Posted by Joseph KeefeSeptember 15, 2016

When government policies are driven by populist politics, it is almost certain to lead to poor outcomes and a low standard of debate, as shown by the current conundrum in Australia's natural gas sector.

The natural gas-rich Northern Territory has become the latest of Australia's eight state and territory governments to restrict the development of the industry, by placing a moratorium on hydraulic fracturing, or fracking, of wells.

The Northern Territory move came as part of a campaign commitment by the newly-elected Labor Party government, which has promised an inquiry into the effects of fracking.

By stopping the development of new natural gas ventures, the Northern Territory has joined the populous southeast states of New South Wales and Victoria, as well as the island state of Tasmania, in stymieing a vital energy source.

The main motivation is seemingly to avoid conflict with well-resourced environmental groups opposed to fossil fuels, as well as farmers, who have concerns about the potential impact of fracking on water tables and on the availability of farmland.

But in caving into pressure groups, politicians are setting themselves up for bigger problems down the track, as a lack of supply will drive natural gas prices higher, threatening industries and causing retail energy prices to spike.

Although the Northern Territory move has been initiated by a centre-left Labor government, the hobbling of the natural gas industry is not a reflection of the traditional political divide in Australia.

New South Wales, the most populous state and home to the economic hub of Sydney, has also placed a moratorium on projects using coal seams to extract natural gas, and it is ruled by the centre-right Liberal Party, which also holds power at a federal level and in Tasmania.

Victoria has a Labor government, but its recent announcement of a permanent ban on shale and coal seam fracking represents a ramping up of the temporary ban imposed by the state's former Liberal administration.

In stark contrast to the Victorian decision, the Labor government of South Australia is appealing directly to petroleum companies to set up operations in its jurisdiction.

Tom Koutsantonis, South Australia's energy minister and treasurer, has condemned the actions of Victoria, calling it "bad news" that will constrain the supply of natural gas and increase reliance on dirtier coal-fired electricity.

"I strongly believe that the approval or otherwise of gas exploration and extraction projects should be left to independent experts, rather than to politicians," Koutsantonis said in a statement last month.

So why is South Australia so in favour on exploring for unconventional natural gas? It might be because the state is facing electricity shortages since the closure of its last coal power station in May.

While it can run on gas-fired power and renewables, when the wind doesn't blow or the sun doesn't shine, South Australia becomes reliant on power from neighbouring Victoria, which is predominantly coal-fired.

GREEN IRONIES
This exposes one of the greatest ironies of the campaign against natural gas fracking.

By ensuring that natural gas supplies will be limited, and therefore prices high, environmental activists are keeping coal-fired power competitive.

Victoria has some of the most-polluting coal plants on the planet in terms of emissions per kilowatt-hour generated, as they rely on poor-quality lignite mined next to the generators.

Many of the environmental groups reject natural gas as a transition fuel between coal and renewables, and furthermore reject independent scientific reports that show the risks of fracking are minimal with suitable regulation.

It appears the hypocrisy of (correctly) challenging climate-change deniers on the basis of scientific evidence, but ignoring the science of fracking is lost on many green activists.

For the moment, activists and farmers appear to have some of Australia's state and territory governments running scared.

The state leaders in Victoria and New South Wales aren't being up front with their electorates, pretending as they are that banning onshore natural gas projects won't have an economic impact.

It will, especially in Victoria, which is home to many natural gas consuming industries, such as chemicals, fertilizers and packaging. You may imagine jobs would be a front-and-centre issue given the state is about to lose tens of thousands as the motor vehicle industry shuts down over the next two years.

Already domestic natural gas prices are rising and consumers could soon have to pay, apart from transport costs, a price equal to what the three liquefied natural gas plants in the northeastern state of Queensland can get for their product from international buyers.

With many domestic long-term natural gas contracts ending in the next two years, it's possible that higher costs for new supplies will cause businesses to re-evaluate their operations or expansion plans.

Perhaps Australia's politicians should use some of their expense money to go to one of Bruce Springsteen's concerts when he tours the country next year.

Perhaps the rocker will perform My Hometown, his lament to the rust-belt cities in the northeast United States. If he does, the politicians should heed the following line. "Foreman says these jobs are going boys and they ain't coming back."